No way out? The barriers to switching platforms

Platforms are being urged to cut down on the barriers that exist when it comes to switching providers

Advisers have been critical of platforms’ lengthy or costly switching processes and, as the FCA’s focus on competition in the platform market hots up, Money Marketing has investigated the roadblocks to moving client assets between platforms.

Commentators have previously told Money Marketing the regulator is also interested in how easy it is to move clients from one platform to another and the charges involved.

After releasing its thematic review on due diligence in February last year, the FCA said it had it no plans to intervene in the platform switching space despite experts warning obstacles to transferring clients are increasing “status quo bias”.

He says: “Competition is not just about where new money goes; it is about where money is. Making it difficult to leave is a barrier not just from the platform’s point of view, but also for advisers, for example, where advice firms are given completed due diligence questions by the platforms themselves and use that as their due diligence.”

Tensions in the market exist with platforms wanting to gather and hold onto assets and advisers using the platform as part of the administration system for running their own businesses.

Bentley adds: “Part of the problem is advisers do not have a great motivation to move because the platform is the advisers’ back office and, at the end of the day, the client is asking the adviser to use a different back office system. That is the reality of it.”

Competition is not just about where new money goes; it is about where money is.

Counting up the costs

In a bid to find out whether cost is a barrier to moving client assets, Money Marketing asked a total of 20 platforms for information about whether they impose fees for platform switching. We sought to find out which platforms – if any – charge to close an account, to conduct in-specie transfers, or to move assets out of different tax wrappers.

Eleven of the 16 platforms that responded said they do not impose any charges with just AJ Bell Investcentre, Bestinvest, James Hay and Alliance Trust Savings imposing fees for switching.

Even though it is a direct-to-consumer platform, Money Marketing asked Hargreaves Lansdown for switching charges after one adviser said they had had problems with the platform in the past.

Hargreaves charges £25 plus VAT to close an account, £25 for cash transfers and £25 per line of stock for an in-specie transfer.

When asked what the charges are for moving assets from a Sipp, Isa or GIA, a Hargreaves spokesman says there is no fee for cash but otherwise a fee of £12.50 per line of stock for in-specie transfers applies.

Praemium and Raymond James did not provide answers to the questions but according to Platforum’s latest platform pricing guide, both platforms charge £25 per line of stock to transfer out.

A James Hay spokeswoman says online transactions do not have a charge.
But she adds: “When there is a charge, this covers the cost of administering the transaction. Our pricing is modular and fair for all, customers only pay for what they use when they use it, so those who don’t use certain product features do not cross-subsidise those who do.”

Alliance Trust Savings platform proposition head Sara Wilson says: “In line with our belief that each customer should cover the cost of the services they receive, our flat charges are based on the work involved in undertaking each activity.

“We believe this is a fairer and more transparent way to split costs, rather than blend the annual costs of all activity and charge as a percentage across all clients, regardless of what they do on the platform.”

An AJ Bell spokesman says the company’s approach is to charge for activities where work is required on its behalf so it keeps the main platform fee low for all clients.

He says: “Our main platform charge scales down from 0.2 per cent per annum, which is cheaper than most in the market. We then charge for specific activities only when a client wants us to do that work and of course not all clients need those activities and hence don’t pay for them.

“Some platforms may not have these fees but their main platform charge might be, say, 0.4 per cent, which might work out as more expensive. Ultimately it is the total cost that the client pays that is important, which is why it is difficult to just focus on certain charges in isolation.”

Taking up time

The main cost to an advice firm switching platforms is adviser or paraplanner time. Money Marketing has heard some advisers are absorbing the cost of the process rather than charging the client.

Candid Financial Advice director Justin Modray says his firm only recommends moving platforms when it is clear the client will save money over time.

Modray adds: “When we recommend a client transfer from a platform we previously recommended, for example, where a client’s portfolio has grown to make a fixed-fee platform more cost effective, we do not charge initial advice fees.”

Bentley says advisers not charging the cost of switching platforms back to the client could be a recognition that the platform is the advisers’ back office system and not primarily a tool for the client.

Bentley thinks this is where the situation even becomes “slightly disingenuous”; if the platform is for the benefit of the client and they ask the adviser to move them off that platform it would be within the adviser’s right to charge the client for that procedure.

But he adds: “If the platform is to the adviser’s benefit and not to the client’s then you would feel a little guilty charging the client for making a move because it upsets your administration arrangements.”

Adviser view

Ian ThomasDirector, Pilot Financial Planning

Switching across multiple clients is where the problem starts because you have to view every client as an individual and write individual suitability reports.

Perhaps there could be a negative affirmation process where advisers write to clients and say: “If we don’t hear from you we are going to change your platform” rather than advisers having to write individual suitability reports.

That would certainly expedite the process and reduce the cost to the business.

Bending the barriers

Other potential barriers to changing platform include issues with transferring funds between different share classes and delays in moving model portfolio clients.

Seven Investment Management platform head Verona Smith says clients with model portfolios could be subject to a staggered transition of assets when switching platforms.

She adds: “It could be the case that not everything can be moved at the same time. If the whole model portfolio is not there you cannot rebalance it.”

Moving funds to different share classes was also deemed a complicating factor. Zurich retail platform strategy head Alistair Wilson says the time required to re-register assets is the main issue, rather than the transfer time itself.

He adds: “A switch into another share class of the same fund may need to be actioned before the re-registration can take place. This assumes the holding platforms make the standard share class available.

“Platforms that have squeezed costs down should always make the standard share class available to ensure clients can move easily if they wish to.”

Bentley agrees there are complications with platforms that have successfully negotiated cheaper prices on particular fund classes but says, overall, the argument about share classes “doesn’t wash”.

He says: “What matters is the total cost for the client. If it turns out you are moving to a platform that is marginally cheaper but it is marginally more expensive for the share classes then you wouldn’t do it.

“The argument about share classes doesn’t wash because the only reason people would have to move is if the benefit to the client, in terms of cost, was so significant that it didn’t matter to a great extent whether they were in a discounted share class or a clean share class because you are probably getting a better deal from a cheaper platform price.”

What matters is the total cost for the client. If it turns out you are moving to a platform that is marginally cheaper but it is marginally more expensive for the share classes then you wouldn’t do it.

Sign of the times

The time it takes to transfer assets also varies and Modray says some clients are “dismayed” at how long transfers can take.

He adds: “We devote a lot of resource to chasing platforms to ensure transfers go smoothly. It’s the right thing to do for our clients, but as a business owner it’s very frustrating as we shouldn’t have to do this. Platforms and fund managers need to get their act together and agree on a common electronic transfer standard, although I’m not holding my breath.”

The Tisa Exchange, established after the RDR, is a hub for electronic messaging between platforms to facilitate transfers.

One hundred companies are listed as being members of TEX on its website and Tisa chief operations officer Carol Knight estimates platforms accounting for 90 per cent of funds under management have signed up.

But Knight says the market remains fragmented, with not all companies signing up for TEX or Origo, the electronic messaging service for personal pension transfers. Knight adds: “There is always more than one party involved in a transfer – and very often, there are multiple parties involved. It only needs one of those parties not to have agreed to abide by the rules for the whole thing to slow down. That is problematic.”

Platforms gave varying responses when asked for average times to switch platforms. Smith says if both parties use electronic re-reg then a transfer can take as little as a few days but paper-based transfers can take up to four weeks.

Ascentric says its average timescale for an electronic transfer is around 10.5 days and the average for a manual transfer is 15.5 days. A spokeswoman says the timings depend on the ceding providers’ response to the request, so the time taken is often out of the control of the adviser, the client and the receiving platform.

Ascentric marketing head Sarah Lyons says the industry needs to “raise its game” when it comes to speed in completing transfers.

She adds: “Given the significant differences between providers’ average timescales, we always recommend that advisers factor the potential timing into their discussions with their clients so they are able to manage their expectations.

Expert view

Andy Bell, chief executive,
AJ Bell

One of the unintended consequences that came out of the RDR and the associated platform review is the proliferation of multiple share classes. A knock-on impact of this complex web of share classes is it has made the process of transferring between platforms harder in cases where investors hold a share class that is not available on the platform they want to transfer to.

This can potentially get in the way of investors switching to a better value platform and hence is not helping competition in the market. Moving back to a single retail share class for each fund, with discounts applied in the form of cash rebates, would make the process of re-registering between platforms significantly simpler.

Another area that needs addressing in relation to platform transfers is the process of moving clients in bulk between platforms. The platform market has reached a stage of maturity where many technology systems need upgrading and consolidation of providers has started to happen. The inevitable transfer of clients onto new technology platforms is leading to a significant level of disruption at some platforms that may be the catalyst for advisers to decide to move blocks of clients to a better value and more suitable platform for their needs.

While this is technically possible, many advisers are put off moving clients in bulk because of the individual advice requirements.

Guidance from the regulator that a simplified suitability process can be followed where it is clear a better-value option is available to a group of clients would make this process easier for advisers, would improve competition in the market and result in increased value for money for those involved.

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Comments

I’d thought that somewhere in amongst the FCA’s labyrinthine rule book that there’s one which effectively prohibits any charges or penalties whatsoever if an investor wishes to transfer his holdings to an alternative platform. So why are certain organisations apparently exempt from this rule?